As the legal quicksand around Sam Bankman-Fried and his parents deepens, the family is turning to a risky strategy: blame the lawyers. In particular, they are amplifying criticism of Sullivan & Cromwell, suggesting the white-shoe law firm betrayed its obligations to look out for the best interests of its client. The latest salvo comes in the form of a New York Times piece that has the family’s fingerprints all over it. Here’s a short excerpt:
“For months, Mr. Bankman-Fried has attacked Sullivan & Cromwell in court papers and on social media, arguing that the firm’s lawyers set him up as the fall guy for FTX’s implosion while downplaying their own involvement with the exchange…Criticism of Sullivan & Cromwell has become more widespread recently, as the firm has racked up over $100 million in legal fees from FTX’s bankruptcy.”
The criticism is not unwarranted. There is something icky about a gang of elite lawyers billing millions to a business that turned out to be a massive fraud, and then turning around and billing many millions more helping to help untangle that fraud. But icky is not the same as illegal—as a law professor cited in the Times’ story makes clear. It also stands to reason that a storied and sophisticated law firm like Sullivan & Cromwell has guardrails in place to ensure its attorneys don’t breach their basic legal duties to their clients.
So what is the family trying to accomplish by dragging the firm’s name through the mud? The answer seems to be that they are laying the groundwork for an “advice of counsel” defense—claiming that Bankman-Fried got bum legal advice as part of a larger strategy of trying to portray him as a poor lad who got in over his head.
There are two big problems with the advice of counsel tactic, though. The first is, not only is it unlikely to work, but it will open the door to a potential trove of new evidence for prosecutors. That’s because if you try to blame your lawyers, they have a right to defend themselves—and that in turn means forfeiting the attorney-client privilege that stamps various documents and conversations as off-limits to the prosecution.
The second big problem with the advice of counsel tack is that it will invite the jury and the public to take a closer look at who advised Bankman-Fried in setting up and running FTX. As a recent Businessweekexposé titled “Meet the Parents” revealed, Bankman-Fried’s tax lawyer father had an active role in many key business decisions, including the creation of the notorious FTT token. Meanwhile, his father also received $10 million in FTX funds he has failed to return—presumably because he needs it for his son’s legal defense. If we want to talk about who provided legal advice to Bankman-Fried, Sullivan & Cromwell is probably not the best place to start.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
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Coinbase sought to acquire FTX's European business as part of its strategy to build out its derivatives operations. (Fortune)
Binance is the latest to invoke the long-dormant "major questions doctrine" in a court filing that claims the SEC doesn't have jurisdiction over digital assets. (CoinDesk)
Web3 gaming startup Proof of Play raised $33 million from a16z on the premise it will build games that are actually fun and not simply extractive. (Fortune)
An appeals court unanimously rejected Sam Bankman-Fried's appeal to be released from jail as he awaits his criminal trial. (Reuters)
MEME O’ THE MOMENT
SBF gets the South Park treatment:
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